Tesla shares hit reverse amid missed Model 3 targets

By Jonathan Berr

April 18, 2018 / 5:00 AM
/ MoneyWatch

Tesla temporarily halts Model 3 production

After skyrocketing more than 530 percent over the past five years, shares of Tesla (TSLA) have gone from overdrive to reverse in 2018. The stock price has dropped about 8 percent since January as many investors grow increasingly skeptical that CEO Elon Musk will be able to back up his bold promises for the electric vehicle company.

With prices starting at $35,000, the Model 3 is Tesla's first vehicle aimed at the mass market (though well-optioned versions can top $50,000). Tesla announced earlier this week that it was pausing Model 3 production at its Fremont, California, plant for several days for what it described as "planned downtime." It had earlier shuttered the Model 3 line in February "to improve automation and systematically address bottlenecks in order to increase production rates."

According to Abe Vadhavkar, director of manufacturing, engineering and technology at the nonprofit Center for Automotive Research, carmakers faced with similar problems to Tesla's wouldn't shut down a whole production line.

"OEMs [original equipment manufacturers] may lose part of a shift or a shift, but shutting down for several days is unheard of," Vadhavkar said in an email. "Tesla is likely to miss their production ramp-up curve by a significant amount if they are shutting down production for three to four days, especially if this is the first of more shutdowns to follow."

Just last week, billionaire CEO Musk told Gayle King on "CBS This Morning" that the company is determined to fix its manufacturing problems after being stuck in "production hell," much of it relating to the Model 3.

Musk, however, has had a tough time delivering.

Earlier this month, after failing to hit many of Musk's 2017 goals, Tesla said it missed its first-quarter production target of 2,500 Model 3s per week. Last year, Tesla vowed that 2018 would be a "transformative year" for the company and predicted that Model 3 production would hit 5,000 per week by the end of the second quarter.

Still, Musk keeps trying to refute the claims by many Wall Street analysts that the company, which hasn't earned a profit, will have to raise money in the capital markets to fund its operations this year. He even forecasts that it's "possible" Tesla might be profitable in 2018.

Bernstein Research analyst Toni Sacconaghi is among the skeptics, arguing in a note to clients that unless Tesla can significantly "rein-in" expenses, it will have to raise capital. He also doesn't think the company will make its profit margin forecast.

According to Bloomberg, Tesla churns through about $480,000 every hour, which works to about $1 billion a quarter. That's thanks in large part to the company's investment in the Model 3, which isn't likely to earn a profit anytime soon.

Telsa also is facing increased competition from rival automakers that plan to introduce more than a 100 new battery-powered electric vehicles with a range of more than 200 miles through 2022, according to Gordon Johnson, an analyst with Vertical Group.

"Tesla has had no competition for most of its lifetime," said Johnson, who recently initiated coverage of the stock -- with a "sell" rating.